FHA 203k Appraisal Requirements
All appraisals for FHA 203k loans must be completed by a HUD-approved appraiser. Properties considered in less than “average” condition by the appraiser are ineligible, unless the appraiser specifically states the required repairs will bring the property up to average condition.
The LTV is based on the lesser of:
- The sales price or “as is” appraised value plus borrower paid repairs minus excess sales concessions, or
- 110% of “as completed” appraised value
When a 203(k) loan is coupled with an energy efficient mortgage, the base loan amount may exceed the county maximum up to $8,000.
The appraisal report must provide an “as completed” appraised value that estimates the value of the property after completion of the rehabilitation work. The borrower’s or cost consultant’s work write-up must be available for the appraiser to use in order to determine that “as completed” value.
In order to determine the maximum mortgage amount, the FHA 203(k) valuation analysis consists of 2 separate determinations of value as noted below.
A separate appraisal may be required to determine the “as-is” value. However, it may be determined an “as-is” appraisal is not feasible or necessary. In this instance, the lender may use the contract sales price on a purchase transaction, or the existing debt on a refinance transaction, as the “as-is” value, when this does not exceed a reasonable estimate of value. If the appraiser completes an “as-is” appraisal and “as-repaired” appraisal, the appraiser may only charge one and one-half times the customary fee for an appraisal.
On refinance transactions, when a large amount of existing debt, for instance first and second mortgages, suggests that the borrower has little or no equity in the property, a current “as-is” appraisal must be obtained on which to base the estimated “as-is” value.
On a refinance, the borrower may have substantial equity in the property to assure that no further down payment is required on the new loan amount. In some cases, the borrower will not have an existing mortgage on the property. In this case, some comparables should be obtained from a real estate agent/broker/appraiser to estimate an approximate “as-is” value of the property.
Another way of establishing the “as-is” value is to obtain a copy of the local jurisdiction tax valuation on the property.
For a HUD-owned property, an “as-is” appraisal is not required and a request may be made to the HUD field office to release the outstanding HUD property disposition appraisal on the property to the Client to establish the maximum mortgage for the property. The HUD appraisal will be considered acceptable for use if:
- It is not over 120 days old prior to bid acceptance from HUD, and
- The sales contract price plus the cost of rehabilitation does not exceed 110% of the “as repaired value” shown on the HUD appraisal. If the HUD appraisal is insufficient, another appraisal may ordered to assure the market value of the property will be adequate to make the purchase of the property feasible.
For a HUD-property, the down payment is 3% of the accepted bid price of the property and 100% financing on all other costs.
Have more questions about the FHA 203k Loan Appraisal Requirements? Contact one of our FHA 203k loan experts today.